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Deflation and Silver's Investment Potential

Deflation and Silver's Investment Potential

Dear Reader,

A quick look at the headlines early this morning and an immediate tension is evident.

In The Guardian one story reads, "UK shoppers gain as price falls again in March.  Deflation deepened in footwear, men’s clothing, children’s clothing and babywear, as well as furniture and carpets. Annual food deflation was 0.4% in March, unchanged from February. Fresh food was the driver of the price falls, with the cost of fruit, milk, cheese, eggs, meat, vegetables and oils and fats all lower than a year earlier. Ambient food prices rose, driven higher by bread, cereals and alcohol.  "“So with shop prices continuing to be lower than a year ago this is good news for shoppers," says Mike Watkins, head of retail and business insight at Nielsen.

But on the other hand, The Telegraph runs two stories right next to each other, which are:

1)  "Housebuilders suffer share price drop as construction market falls" and

2)  "FTSE 100 tumbles to 3 week low as investor sentiment sours."

These two diametrically opposed overviews in each newspaper, are, in fact, not contradictions.  If the UK economy is in Deflation, then of course the construction industry, and the stock market, is floundering.  It's just that deflation can "feel" nice at the shops for a while, before recession hits.  It would have been more admirable to see The Guardian therefore encouraging its reader's to save what they are not having to spend on everyday items, instead of tipping their extra cash down the drain of a bankrupt economy.  Indeed, it would be advice that is needed, as a recent report by the Office for National Statistics found that "saving by UK households fell to the lowest rate on record at the end of last year, as Britons raided their accounts to fund purchases. The household saving ratio, which measures the amount of cash households save as a share of disposable income, dropped to 3.8pc in the final three months of 2015, from 4.8pc in the previous quarter, according to the Office for National Statistics (ONS). This represents the lowest quarterly ratio since records began in 1963."

So, if even the mainstream media are now admitting we are indeed in a period of Deflation, what does this mean and what can we do about it?

I first wrote about Deflation coming into the UK economy back in October 2014 in the following piece, "Gold and Silver as a Deflation Hedge."   In it I covered the basic question, “What is Deflation?”

"We all know what inflation means. Painfully, it's when we see our weekly food shop stay the same size but the bill goes up.  We understand clearly that buying and holding Physical Gold and Silver during these times makes sense. As traditional stores of value (rather than paper money) Gold and Silver hold their value to keep up with inflation, and especially so during hyper-inflation.

Deflation, on the other hand, is less known but just as unpleasant.  Webster defines deflation as "a contraction in the volume of available money and credit that results in a general decline in prices.”

"Typically" explains Michael J. Kosares of The Market Oracle, "deflations occur in gold standard economies when the state is deprived of its ability to conduct bailouts, run deficits and print money. Characterized by high unemployment, bankruptcies, government austerity measures and bank runs, a deflationary economic environment is usually accompanied by a stock and bond market collapse and general financial panic — an altogether unpleasant set of circumstances. 

Michael J. Kosares adds an important note to this discussion: "That, by the way, is the primary reason governments tend to restrict gold ownership when confronted with widespread bank runs and failing financial markets. Governments seize gold not because they need the money; they seize it to cut off the escape route and force capital flows back into banks and financial markets.”

So, rather than reading the Guardian's piece and thinking, "Oh, that's good news, prices are down!" it would be good to see it as another clue that Deflation is building and therefore it is reason for the great British public to save more, because of what we know historically follows Deflation.

Historically, Deflation is usually followed by high-inflation, or in the worst case scenario, hyper-inflation.

"It is no accident that many of the worst periods of hyperinflation are preceded by deflation. In fiat currencies with high levels of government debt, severe cases of deflation cause a loss of confidence in the nation's currency by shrinking the economy and making the government's debt appear increasingly unsustainable. The loss of confidence then causes the flow of money to speed up as individuals become desperate to exchange cash for real goods as fast as possible, producing hyperinflation." (How Deflation creates Hyperinflation, Market Skeptics)

But if you, our reader, are strapped for cash and cannot afford to buy Gold just yet, this week I'd like to focus on the one word that has been missing from many, many commentaries and news articles about Gold as a Safe Haven against economic collapse, and that one word is Silver!

Silver as a quick, accessible Deflation Hedge:

This may surprise many of our readers, but it is actually Silver which is now rarer than Gold: "Silver is now 6 times more rare than gold in terms of what is available above ground. This is what is available for both investors and industrial companies to purchase immediately." (All That Glitters is not Gold, it's Silver, March 2015)

Michael Synder of the Smarter Analyst wrote a brilliant article this week on why he believes Silver is an even smarter investment than Gold.  We at Bleyer believe in a balanced portfolio, with Gold and Silver holding some similar and some different advantages. But, as much of the mainstream news focus has been on Gold, since the beginning of 2016 especially, we would like to highlight this other beautiful precious metal, which has some incredible facts to back up its investment potential:

Synder introduces the piece by stating that, "When panic and fear dominate financial markets, gold and silver both tend to rapidly rise in price.  We witnessed this during the last financial crisis, and it is starting to happen again.  Because I am the publisher of a website called The Economic Collapse Blog, I am often asked about gold and silver when I do interviews.  In fact, just a few days ago I was sitting right next to Jim Rickards during the taping of a television show when this topic came up.  Jim expressed his belief that investing in gold is superior to investing in silver, but I had the exact opposite viewpoint.  In this article, I would like to elaborate on why I believe that silver represents a historic investment opportunity right now."

The first reason I believe Silver has a massive investment potential is its current price ratio to Gold.  I wrote on the beauty of Silver Investment back in April 2015 ("Silver is the New Black"), pointing out its incredibly low "price" compared to Gold at the time.  Here are some up to date figures:

"As I write this article, the price of gold is sitting at $1254.30 an ounce. Meanwhile, the price of silver is sitting at just $15.81 an ounce. That means that the price of gold is currently more than 79 times higher than the price of silver.  For the ratio between gold and silver to be this high is truly unusual. You see, the truth is that there is only about 17 times as much silver as there is gold in the Earth’s crust.  And currently silver is being mined at about an 11 to 1 ratio to gold. So it makes sense that throughout history gold has typically sold at about a 15 to 1 ratio to silver. During the years to come, I do believe that gold will multiply in price. But I am also convinced that the price of silver will go up much, much faster. As they both skyrocket in price, the price ratio between gold and silver will shift very quickly from 79 to 1 in the direction of 15 to 1. Perhaps we may never even get all the way back to 15 to 1, but if we even got to 40 to 1 or 30 to 1, what that would mean for silver would be history making." (Snyder, 21 March 2016)

The second reason is Silver is being used up at a much faster pace than Gold.  Again, I first wrote about this back in November 2014 for Bleyer in a piece called, "Is there a coming Silver Shortage?"  

Previous blogs continue to prove prescient in nature, as current figures for Silver demand continue to break previous records:  "During the first three months last year the U.S. Mint sold 12 million Silver Eagles.  Already, sales of Silver Eagles have reached 13 million.  There are two weeks remaining in March and the U.S. Mint will likely sell another two million.  This will put total Silver Eagle sales for the first quarter at 15 million….. the highest ever. The last record was set in 2013 as the U.S. Mint sold 14.2 million Silver Eagles as the price of silver fell from $32 down to $25 in the first three months of the year.  Regardless, the Authorized Purchasers have been on a one million week allocation for the past two months, so there was no way to acquire more Silver Eagles. " (March 2016)

Snyder logically concludes that, "It has been estimated that approximately one billion ounces of silver have been used in consumer products over the past ten years alone. Even if the world could somehow avoid the great financial turmoil that has already begun, the truth is that eventually a great demand crunch for silver would come just based on how much of it we are steadily consuming.

At less than 16 dollars an ounce right now, silver is ridiculously undervalued. I have always said that I believe that the price of silver will eventually go over $100 an ounce. When that happens, those that got in today will be exceedingly happy with their returns. Others are projecting even greater gains.  For instance, investing legend Egon von Greyerz believes that the price of silver could ultimately go as high as $660 an ounce, and Jeff Nielson believes that $1,000 an ounce for silver would be a fair price."

The Silver market is a notoriously bumpy ride, with its price often rising and falling in sharper moves than Gold's.  But, if one is prepared for that, a look back over history shows its averaged out moves.  An ounce of Silver is currently at £10.71 at time of writing.  That makes it a very affordable investment at present.  With banks and think-tanks worried that British savers will give up saving in this deflationary period of historically low interest rates, Silver offers a safe haven investment of historic value, available to the investor who can afford to put away a small amount each month.  

Bleyer offer a range of sizes of both Silver Coins and Bars, from 30g, 1oz, 2oz, 5oz, 10oz or 1kg coins up to a maximum size of 15 kg bars. Many of the Silver Coins are truly also works of affordable art and are stunning in their design and presentation.  One can either buy as just an investment or as a collection, as some series of designs are offered in sets each year.

Call now on 01769 618618 to discuss the Silver we have available.  When you find you have a little extra cash in your purse due to the current period of Deflation, think about saving little and often in Silver - the less well known but highly promising sister of Gold.

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